The financial access problems faced by nonprofit organizations (NPOs) are a significant part of the findings from a workshop hosted last summer by the World Bank and the Association of Certified Anti-Money Laundering Specialists (ACAMS). The report, Stakeholder Dialogue on Derisking: Findings and Recommendations, summarizes the main findings of the May 31-June 1 meeting as well as the recommendations made by participants. These recommendations are simply a reflection of the discussion rather than any endorsement by the World Bank or ACAMS.
The report explains that regulators and supervisors set the terms for how financial institutions behave through legislation, regulation, examination and enforcement. According to banking sector representatives, the cost of mitigating the risk of regulatory action or of enhanced regulatory scrutiny that has led to the decision to “restrict, withdraw, or not provide services,” the report notes. While many jurisdictions direct financial institutions to adopt a risk-based approach, purportedly allowing the bank to establish their own framework for assessing risk, in practice, regulators second-guess the banks, “treating certain categories of client categorically as high risk and requiring financial institutions to undertake extensive (and expensive) steps to mitigate those risks,” the report states, adding, “A proper risk-based approach should allow financial institutions to determine their scope of due diligence.”
The current framework leads banks to avoid risks entirely, the report states. Among those sectors widely perceived to be high risk are charities/NPOs. There was general consensus at last summer’s meeting on “the vital role played by (NPOs) and charities in conflict zones and trouble spots around the world. However, adding to the already difficult task of providing humanitarian aid in these places, the “inability to move funds or significant delays have made this work even harder, forcing some to close operations in areas of significant need,” according to the report. Many meeting participants noted that charities are automatically considered high risk without consideration of their specific operations or the risk-mitigation “measures they’ve put in place to ensure legitimate use of the funds or changes in FATF requirements and guidance.” Attendees noted that even programs supported by governments’ development agencies are not immune to derisking, and the consequences include death from starvation and disease. One participant said that restrictions on sending money “are resulting in the death of persons, particularly victims of terrorism.”
Recommendations made by workshop participants include:
safe-haven provisions for financial institutions that bank charities in good faith,
increased transparency by banks and giving NPOs opportunities to address areas of concern,
establishment of a due-diligence utility or repository, and
a separate workshop focused on derisking of NPOs.
Read the full report here.